The visit of China’s President Hu Jintao reminds me of my first trip to mainland China in 2003, shortly after he took office. I was invited to represent the Fed at a government sponsored conference in Beijing, and several attendees were invited to meet with the new President in the Great Hall. We sat in a semi-circle around the President and took turns, one by one, as he asked us for our advice.

A professor from Harvard sitting next to me expressed his concern, which he had expressed in more detail earlier in the day during the conference, about the young men as they came into the cities to work from the farms in rural China. He urged the president to make sure their wives and families were allowed and encouraged to come with them because it wasn’t good for the young men to be alone to the cities. When my turn came next, I couldn’t resist commenting that the Harvard professor had been watching too much “Sex in the City” on television. Beyond that, I don’t recall what else I said.

During additional meetings and events over a two week period, those millions of unemployed and underemployed workers back on the farm just waiting for jobs to open up in the cities kept coming up. I remember thinking that China had a perfectly elastic labor supply at low wages waiting in the wings that wouldn’t be fully utilized for many years. It’s wages would remain low and its dominance in manufacturing could only increase.

When I hear of rising wages in China more recently and some outsourced work shifting to lower-wage countries like Vietnam, I wonder what happened to change the situation from what a straight line projection implied. I don’t know the answer.

One possibility, of course, is the single-child policy. I recall vividly, however, that I had no sense of being in a communist or a totalitarian country until I was waiting in the airport to depart. I was finally brought to reality by an article in a newspaper in the airport about some minor liberalization in the single-child policy. It had to do with exceptions that might allow a second child under certain very specific circumstances having to do with the make-up of the extended family or relatives or some such. Even though the article was about a liberalization of the policy, it was a stark reminder that such a policy existed.

I thought little more of it until I was back in China three years later, this time touring commercialization centers of Chinese universities and meeting with local venture capitalists involved in the process. During a general discussion of something that seemed unrelated, one of the local VC’s stopped the conversation with the following comment: “You do realize, don’t you, that anyone under thirty in this country is an only child?” I guess we knew that, but we hadn’t thought of it that way. The comment was a real conversation stopper.

During the 1993 visit, I met with several government or central bank officials, gave several talks, primarily to student groups, and did a couple of TV interviews about guess what–about the yuan/dollar relationship. They weren’t debates. Audiences, especially students, seemed to really want to hear my point of view. Incidentally, the students weren’t overly proud or boastful about the rapid Chinese growth rate. They were concerned about the unevenness of growth and the poverty that remained in the countryside.

Among the government agencies I visited was, believe it or not, the agency in charge of their exchange rate. The courtesy visit was prolonged by what seemed like a very long power-point presentation, which verified Lord Acton’s dictum that power corrupts and power point corrupts absolutely. As I was departing, I was asked to sign their very large guest book and write something in it. I can’t find the photograph of that little ceremony, but I wrote something like “Congratulations to China on its rapid growth rate, and may our two currencies be strong together.”

Just a word more on the 2006 visit: The major universities we visited were impressive in many respects, but especially so in their focus on science and engineering and on their rapidly expanding facilities to turn academic research into commerce. Some universities had high rises dedicated solely to research commercialization with new high rises on the drawing boards or under construction.

At one point someone commented that we were standing between either two or three universities that graduated 50,000 new engineers a year. I remember thinking they produce engineers like we produce lawyers.

If you think of China as an economic competitor, it’s hard to be optimistic about our side. I kept thinking, though, that maybe they can turn scientists and engineers out of their universities in droves, but maybe they aren’t as creative or imaginative or innovative as ours. Then a couple of years later I saw their opening ceremony at their Olympic games. So much for that thought.

When it comes to one-party dictatorships, seeing is not believing. As this Heritage post points out (http://www.heritage.org/Research/Reports/2011/01/China-Grows-10-Percent-Again-Is-This-Believable) the Chinese data may not be what it appears to be.
I recall reading that during the Great Leap Forward in the 1950s, local officials routinely reported to their provincial superiors that they were exceeding their food production quotas under the five year plan, regional officials sent glowing reports to the national level. And the national government responded to the good news by cutting subsidized food shipments to the provinces, leading to the death of millions from hunger.